Louisville Chapter

Chris McGill, Vice President-AGA, Speaks at Louisville Chapter’s February Meeting

Eric Yussman

Market Policy Analyst

Louisville Gas & Electric/Kentucky Utilities

(Louisville, KY)



On February 5, the Louisville Chapter of the U.S. Association for Energy Economics hosted a visit from Chris McGill, Vice President of Policy Analysis at the American Gas Association (AGA). McGill discussed the gas market environment today versus ten years ago, focusing on the transition from supply scarcity to abundance. He highlighted infrastructure, technological progress (specifically the development of shale gas and the technologies that support its extraction), regulatory evolution, changes in consumption, and market stability.


(l. to. r.) Eric Yussman, Joe Rose, Chris McGill, Eric Bickel, Tracy Terkelsen
(officers not pictured: Susan Frockt, Nathan Higginbotham)


McGill asserted U.S. natural gas supply can respond to plausible demand growth scenarios at an affordable cost compared to other energy alternatives. Drivers of natural gas demand are expected to come from all sectors: residential & commercial (economic and population growth, energy efficiency), industrial (manufacturing renaissance, combined heat and power), electric power generation (price advantage for natural gas, EPA Rules), plus LNG and pipeline exports.

In terms of the resources underground, what was once viewed as unrecoverable has changed as technology has improved.  Resources previously unmarketable are economically viable, fundamentally altering the resource landscape.  Natural gas reserves ten years ago were viewed as declining, and it was believed the U.S. would rely upon foreign sources of supply.  Today, the growth in production and abundance of natural gas resources has shifted the dynamic.  Dry gas reserves have increased from ~190 trillion cubic feet (Tcf) in 2003 to ~310 Tcf in 2011. Monthly dry shale gas production increased from ~11 billion cubic feet (Bcf)/day in January 2010 to ~26 Bcf in September 2012.

We are now talking about exporting natural gas, an unthinkable proposition even a few years ago. Further, natural gas is forecast to fuel 30% of electricity generation by 2040.

The price of natural gas reflects these fundamental changes in two ways:

  • Prices are much lower than in prior years
  • Prices are less volatile – an inherent stability seems to have emerged

An example of the latter was the disruption to production associated with Hurricane Ike.  Prices did not spike; in fact, they declined. Since more gas is being produced on-land, the real impact of the hurricane was not one of supply disruption but one of demand reduction. Relative natural gas market price stability during the next ten years supports responsible resource development and reflects continued advancements in extraction and impacts technology.

What do these energy prices mean for consumers?  To estimate the impact prices have on consumer energy bills, AGA conducted an analysis of the energy used in a typical new home for space heating, water heating, cooking, and clothes drying, using each of the four fuels above.   The annual consumption for each end use for each fuel was estimated.  Each appliance was assumed to meet the federal minimum standard for efficiency.  AGA found that, on average, consumers pay less when they use natural gas:

  • The average natural gas household spends $1,275 per year for fueling these appliances.
  • An electricity household incurs, on average, $1,793 in expenditures for an electric heat pump, resistance water heater, cooktop and stove, and dryer.  The expenditures are 40 percent higher than the natural gas household.
  • A fuel oil household spends $2,252 operating a furnace and water heater.  Cooking and clothes drying are assumed to be electric.  These expenditures are 77 percent higher than natural gas.
  • Consumers with propane spend on average $2,596, which is 103 percent greater than a natural gas household.

McGill highlighted the economic contributions of domestic shale gas:

  • Nearly  $1.9 trillion in shale gas capital investments are expected between 2010 and 2035.
  • 600,000 jobs supported by the shale gas industry to grow to 870,000 in 2015 and 1.6 million in 2035.
  • Shale gas contribution to GDP to grow from $76 billion in 2010 to $231 billion in 2035.
  • Savings from lower natural gas prices may add $926 per year of disposable income per household, 2012-2015.

Regarding the hydraulic fracturing technology used to produce shale gas, McGill noted it is critical to engage all stakeholders, including consumers, in the process of meeting environmental and regulatory goals, while continually refining and improving safety and environmental practices.  As part of that stewardship, natural gas producers must demonstrate commitment to safe, environmentally sound and responsible development of natural gas resources. In order to turn sustainable resource development principles into action, producers will focus on: reduced land footprint, water management, fugitive air emissions, well integrity, fracture-fluid chemistry, incident response, and basin-specific data acquisition.

McGill noted that natural gas produces the fewest greenhouse gas lifecycle emissions of any available fossil fuel.  It also produces very low levels of sulfur dioxides, nitrogen oxides, and fine particulate matter—and no emissions of mercury. The average full-fuel-cycle greenhouse gas emissions of a typical natural gas household’s energy use is 44 percent less than electricity. This includes combusted and fugitive or leaked methane emissions.   Similarly, the natural gas household modeled emitted 27 percent less greenhouse gases than a household using distillate fuel oil, and 16 percent less than one using propane.

These facts underscore the potential for natural gas and natural gas equipment to be considered as a carbon mitigation tool.  Replacing less efficient and more carbon intensive equipment with high efficiency natural gas can lead to substantive decreases in greenhouse gases.

In sum, the promise of natural gas is threefold:

  • Market stability stemming from resource abundance
  • Consumer optimism regarding natural gas’ value proposition
  • Growing infrastructure



About the Louisville Chapter, USAEE

The Louisville chapter of the US Association for Energy Economics was founded by Eric Yussman in 2009, meets 4-6 times per year, and has 40-80 regular attendees at its events. Its goals are to provide a means of professional communication and exchange of experience and ideas among persons interested in energy economics educate the community on energy economic issues. The chapter’s events attract a wide array of local expertise in the energy industry, in addition to folks from non-energy fields. Supplementing the lectures on specific energy topics, the chapter this year will be holding a "Leadership Series" in which local energy company executives advise high school & college-age attendees on the personal/professional characteristics needed to succeed in the energy field.




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